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TRULEUM, INC. - Quarter Report: 2023 March (Form 10-Q)

aphe20230331_10q.htm
 

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

   
 

For the quarterly period ended March 31, 2023.

   

Transition Report under Section 13 or 15(d) of the Exchange Act

   
 

For the Transition Period from          to          

 

Commission File Number: 000-55586

 

 

Truleum, Inc.

 

(Exact Name of Registrant as Specified in its Charter)

 

 

Colorado

90-1020566

 
 

(State of other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

 

 

14143 Denver West Parkway, Suite 100,

Golden, CO 80401

(Address of principal executive offices) (Zip Code)

 

Registrant's Phone: 800-819-0604

 

Alpha Energy, Inc.

Former name or former address, if changed since last report

 

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large, accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

Large accelerated filer

Accelerated filer                    

 

Non-accelerated filer

Smaller reporting company   

     

Emerging Growth Company 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

None

   

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of June 1, 2023, was 21,724,178.

 

1

 

 

 
 

TABLE OF CONTENTS

Page

     
 

PART I  FINANCIAL INFORMATION

 

Item 1.

Financial Statements

3

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

13

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

14

Item 4.

Controls and Procedures

14
     
 

PART II – OTHER INFORMATION

 
     

Item 1.

Legal Proceedings

14

Item 1A.

Risk Factors

14

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

14

Item 3.

Defaults Upon Senior Securities

14

Item 4.

Mine Safety Disclosures

15

Item 5.

Other Information

15

Item 6.

Exhibits

16

 

2

 

 

ITEM 1. FINANCIAL STATEMENTS

 

 

Page(s)

Consolidated Balance Sheets (unaudited)

4

   

Consolidated Statements of Operations (unaudited)

5

   

Consolidated Statements of Stockholders' Deficit (unaudited)

6

   

Consolidated Statements of Cash Flows (unaudited)

7

   

Notes to the Consolidated Financial Statements (unaudited)

8

 

 

3

 

 

 

Truleum, Inc.

 

(Formerly Alpha Energy, Inc.)

 

Consolidated Balance Sheets

(Unaudited)

 

 

 
                 
   

March 31, 2023

    December 31, 2022  
            As Revised  

Assets

               
Current assets:                

Cash and cash equivalents

  $ 16,469     $ 95,362  

Joint interest billing receivable

    30,742       31,492  

Prepaid assets and other current assets

    94,221       81,690  

Total current assets

    141,432       208,544  
                 

Noncurrent assets:

               
Property and equipment, net     81,913       88,020  
Oil and gas property, unproved, full cost     1,542,814       1,460,674  

Total noncurrent assets

    1,624,727       1,548,694  
                 

Total assets

  $ 1,766,159     $ 1,757,238  
                 

Liabilities and Stockholders' Deficit

               
                 

Current liabilities:

               

Accounts payable and accrued expenses

  $ 666,216     $ 334,657  

Accounts payable and accrued expenses - related parties

    354,260       328,375  

Interest payable - related parties

    45,779       22,183  

Convertible note payable

    1,210,000       1,210,000  

Total current liabilities

    2,276,255       1,895,215  
                 

Senior secured convertible notes payable, related party, net of discount of $94,528

    1,225,432       1,199,729  

Asset retirement obligation

    918       918  

Total liabilities

    3,502,605       3,095,862  
                 

Commitments and contingencies

           
                 
Stockholders' deficit:                

Preferred stock, 10,000,000 shares authorized:

               

Series A convertible preferred stock, $0.001 par value, 2,000,000 shares authorized and 0 shares issued and outstanding

    -       -  

Common stock, $0.001 par value, 65,000,000 shares authorized and 21,653,326 shares issued and outstanding

    21,653       21,653  

Additional paid-in capital

    5,793,830       5,731,830  

Accumulated deficit

    (7,551,929

)

    (7,092,107

)

Total stockholders' deficit

    (1,736,446

)

    (1,338,624

)

                 

Total liabilities and stockholders' deficit

  $ 1,766,159     $ 1,757,238  

 

See accompanying notes to the unaudited consolidated financial statements.

 

4

 

 

 

Truleum, Inc.

 

(Formerly Alpha Energy, Inc.)

 

Consolidated Statements of Operations

 

For the three months ended March 31, 2023 and 2022

(Unaudited)

 

 

 
                 
   

March 31, 2023

    March 31, 2022  
                 

Oil and gas sales

  $ 71,716     $ -  
                 

Lease operating expenses

    179,441       1,876  

Gross loss

    (107,725 )     (1,876 )
                 

Operating expenses:

               

Professional services

    110,483       148,688  

Board of director fees

    36,000       48,000  

General and administrative

    151,530       149,330  

Total operating expenses

    298,013       346,018  

Loss from operations

    (405,738 )    

(347,894

)
                 
Other income (expense):                

Other income

    1,139       -  

Interest expense

    (55,223 )     (25,486 )

Gain (loss) on change in fair value of derivative liabilities

    -       (2,758 )

Total other income (expense)

    (54,084 )     (28,244 )
                 

Net loss

  $ (459,822 )   $ (376,138 )
                 

Loss per share:

               

Basic

  $ (0.02 )   $ (0.02 )

Diluted

  $ (0.02 )   $ (0.02 )
                 

Weighted average shares outstanding:

               

Basic

    21,653,326       18,824,106  

Diluted

    21,653,326       19,256,426  

 

See accompanying notes to the unaudited consolidated financial statements.

 

5

 

 

 

Truleum, Inc.

 

(Formerly Alpha Energy, Inc.)

 

Consolidated Statements of Stockholders' Deficit

 

For the three months ended March 31, 2023 and 2022

(Unaudited)

 

 

 
                                         
    Common Stock    

Additional

   

Accumulated

   

Total
Stockholders'

 
   

Shares

    Amount     Paid-in Capital     Deficit     Deficit  
                                         

Balance, December 31, 2022

    21,653,326     $ 21,653     $ 5,731,830     $ (7,092,107 )   $ (1,338,624 )

Stock-based compensation

    -       -       62,000       -       62,000  

Net loss

    -       -       -       (459,822 )     (459,822 )

Balance, March 31, 2023

    21,653,326     $ 21,653     $ 5,793,830     $ (7,551,929 )   $ (1,736,446 )
                                         

Balance, December 31, 2021

    18,824,106     $ 18,824     $ 2,739,634     $ (5,371,918 )   $ (2,613,460 )

Stock-based compensation

    -       -       63,000       -       63,000  

Net loss

    -       -       -       (376,138 )     (376,138 )

Balance, March 31, 2022

    18,824,106     $ 18,824     $ 2,802,634     $ (5,748,056 )   $ (2,926,598 )

 

See accompanying notes to the unaudited consolidated financial statements.

 

6

 

 

 

Truleum, Inc.

 

(Formerly Alpha Energy, Inc.)

 

Consolidated Statements of Cash Flows

 

For the three months ended March 31, 2023 and 2022

(Unaudited)

 

 

 
                 
   

March 31, 2023

    March 31, 2022  
                 

Cash flows from operating activities:

               

Net loss

  $ (459,822 )   $ (376,138 )

Adjustments to reconcile net loss to net cash used in operating activities:

               

Stock-based compensation

    62,000       63,000  

Depreciation expense

    6,107       -  

Amortization of debt discount

    25,703       10,826  

Loss on change in fair value of derivative liabilities

    -       2,758  

Changes in operating assets and liabilities:

               

Joint interest billing receivable

    750       -  

Prepaid expenses and other current assets

    (12,531

)

    (1,250 )

Accounts payable

    331,559       (18,788 )

Accounts payable-related party

    25,885       (1,336 )

Interest payable

    23,596       14,660  

Net cash provided by (used in) operating activities

    3,247       (306,268 )
                 

Cash flows from investing activities:

               

Acquisition of oil and gas property

    (82,140

)

    (507,814 )

Net cash used in investing activities

    (82,140 )     (507,814 )
                 

Cash flows from financing activities:

               

Proceeds from advances, related parties

    -       110,235  

Proceeds from senior secured convertible notes payable, related party

    -       499,996  

Proceeds from unexecuted subscription agreements

    -       1,281,600  

Net cash provided by financing activities

    -       1,891,831  
                 

Net change in cash and cash equivalents

    (78,893 )     1,077,749  
                 

Cash and cash equivalents, at beginning of period

    95,362       217  
                 

Cash and cash equivalents, at end of period

  $ 16,469     $ 1,077,966  
                 

Supplemental disclosures of cash flow information:

               

Cash paid for interest

  $ -     $ -  

Cash paid for income taxes

  $ -     $ -  
                 
Supplemental disclosure of non-cash investing and financing activities:                

Debt discount on senior secured convertible notes payable - related party

  $ -     $ 208,476  

Advances and other liabilities converted to senior secured convertible notes payable, related party

  $ -     $ 819,963  

 

See accompanying notes to the unaudited consolidated financial statements.

 

7

 

 

Truleum, Inc.

(Formerly Alpha Energy, Inc.)

Notes to the Consolidated Financial Statements

 

 

 

 

NOTE 1 – BASIS OF PRESENTATION

 

The interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2022 and 2021 which are included on the Form 10-K filed on April 17, 2023. In the opinion of management, all adjustments which include normal recurring adjustments, necessary to present fairly the financial position, results of operations, and cash flows for the periods shown have been reflected herein. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the operating results for the full year. Certain information and footnote disclosures which would substantially duplicate the disclosures contained in the audited consolidated financial statements for the years ended December 31, 2022, and 2021 have been omitted.

 

On April 27, 2023, the Company amended its articles of incorporation to change their name from Alpha Energy, Inc. to Truleum, Inc.

 

Principles of Consolidation

 

Our consolidated financial statements include our accounts and the accounts of our 100% owned subsidiary, Alpha Energy Texas Operating, LLC. All intercompany transactions and balances have been eliminated.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates. Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure, among other items, that (1) recorded transactions are valid; (2) all valid transactions are recorded and (3) transactions are recorded in the period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the company for the respective periods being presented.

 

Basic and Diluted Loss per share

 

Net loss per share is provided in accordance with FASB ASC 260-10, “Earnings (Loss) per Share”. Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive. For the three months ended March 31, 2023 and 2022, there were 263,992 shares issuable from the senior secured convertible notes payable and 0 and 168,328 shares issuable from the convertible credit line payable which were considered for their dilutive effects but were determined to be anti-dilutive due to the Company’s net loss, respectively.

 

Fair Value of Financial Instruments

 

The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

 

8

 

The carrying amount of the Company’s financial instruments consisting of cash and cash equivalents, accounts payable, notes payable and convertible notes approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.

 

Reclassification

 

Certain reclassifications may have been made to our prior year’s financial statements to conform to our current year presentation. These reclassifications had no effect on our previously reported results of operations or accumulated deficit.

 

Recently Issued Accounting Standards Not Yet Adopted

 

The Company has reviewed all recently issued, but not yet adopted, accounting standards, in order to determine their effects, if any, on its results of operations, financial position or cash flows. Based on that review, the Company believes that there are no recently issued accounting pronouncements that will have a significant effect on its financial statements.

 

 

Note 2 CORRECTION OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

 

In the course of preparing its financial statements for the three months ended March 31, 2023, the Company identified errors in the financial statements for the year ended December 31, 2022. The errors pertain to the overstatement of revenue and the understatements in property and equipment, net, accounts payable and accrued expenses – related parties, and general and administrative expenses for the year ended December 31, 2022.

 

The Company assessed the materiality of these misstatements on prior periods’ financial statements in accordance with SEC Staff Accounting Bulletin (“SAB”) No. 99, Materiality, codified in ASC 250 (“ASC 250”), Presentation of Financial Statements, and concluded that these misstatements were not material to any prior annual or interim periods. Accordingly, in accordance with ASC 250 (SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements), the Financial Statements as of December 31, 2022, and the year then ended, which are presented herein, have been revised. The following are selected line items from the Company's balance sheet, statement of operations and statements of cash flow for the affected period illustrating the effect of these corrections:

 

 

Balance Sheet

 

As of December 31, 2022

 
   

As Reported

   

Adjustment

   

As Revised

 
                         

Property and equipment, net

  $ 68,378     $ 19,642     $ 88,020  

Total noncurrent assets

    1,529,052       19,642       1,548,694  

Total assets

    1,737,596       19,642       1,757,238  
                         

Accounts payable and accrued expenses

    302,266       32,391       334,657  

Accounts payable and accrued expenses - related parties

    203,484       124,891       328,375  

Total current liabilities

    1,737,933       157,282       1,895,215  

Total liabilities

    2,938,580       157,282       3,095,862  
                         

Accumulated deficit

    (6,954,467 )     (137,640 )     (7,092,107 )

Total stockholders' deficit

  $ (1,200,984 )   $ (137,640 )   $ (1,338,624 )

 

 

Statement of Operations

 

For the year ended December 31, 2022

 
   

As Reported

   

Adjustment

   

As Revised

 
                         

Revenue

  $ 270,627     $ (72,183 )   $ 198,444  

Gross loss

    (303,143 )     (72,183 )     (375,326 )

General and administrative

    692,937       35,796       728,733  

Loss from operations

    (1,559,845 )     (107,979 )     (1,667,824 )

Net loss

    (1,582,549 )     (137,640 )     (1,720,189 )

Loss per share - basic and diluted

  $ (0.08 )     (0.01 )   $ (0.09 )

 

 

Statement of Cash Flows

 

For the year ended December 31, 2022

 
   

As Reported

   

Adjustment

   

As Revised

 
                         

Cash Flows from Operating Activities:

                       

Net loss

  $ (1,582,549 )     (137,640 )   $ (1,720,189 )

Depreciation

    4,188       4,741       8,929  

Accounts payable and accrued expenses

    19,917       32,391       52,308  

Accounts payable and accrued expenses - related parties

    (13,085 )     100,508       87,423  

Net cash used in operating activities

    (1,463,814 )     -       (1,463,814 )
                         

Supplemental disclosure of non-cash investing and financing activities:

                 

Expenses paid on behalf of the Company by related party

  $ -       24,383     $ 24,383  

 

9

 

 

 

NOTE 3 – GOING CONCERN

 

The Company’s interim unaudited consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has minimal cash or other current assets and does not have an established ongoing source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

 

NOTE 4 – OIL AND GAS PROPERTIES

 

Oil and gas properties at March 31, 2023 and December 31, 2022 consisted of the following:

 

   

Balance

           

Balance

 

Account

 

12/31/2022

   

Additions

   

3/31/2023

 

Leasehold Improvements - Chico Rica, LLC

  $ 40,000     $ -     $ 40,000  

Leasehold Improvements - Undeveloped

    62,596       -       62,596  

Lease Acquisition and Development Costs - Logan County

    1,358,078       82,140       1,440,218  

Total oil and gas related assets

  $ 1,460,674     $ 82,140     $ 1,542,814  

 

 

NOTE 5 – RELATED PARTY TRANSACTIONS

 

Advances from Related Party

 

The Company received advances from AEI Management, Inc., a Company owned by a significant shareholder, totaling $0 and $88,956 during the three months ended March 31, 2023 and 2022, respectively. The advances are unsecured, non-interest bearing and are payable on demand. During the three months ended March 31, 2022, the Company repaid $10,000 of the advances and converted $413,206 of advances to a senior secured convertible note due February 24, 2024.

 

The Company received advances from Jay Leaver, President of the Company, totaling $0 and $31,280 during the three months ended March 31, 2023 and 2022, respectively. The advances are unsecured, non-interest bearing and is payable on demand. During the three months ended March 31, 2022, the Company converted $325,580 of advances to a senior secured convertible note due February 24, 2024.

 

Accounts Payable and Accrued Expenses - Related Parties

 

As of March 31, 2023 and December 31, 2022, there was $354,260 of accounts payable related parties which consisted of $328,375 due to Leaverite Exploration, Inc. d/b/a Leaverite Consulting (“Leaverite Exploration”), a corporation wholly-owned by our President, Jay Leaver pursuant to a consulting agreement.

 

10

 

Senior Secured Convertible Notes Payable – Related Party

 

On February 25, 2022, the Company entered into secured senior secured convertible note for the purchase and sale of convertible promissory notes (“Convertible Note”) in the principal amount of $5,000,000. The Senior Convertible Note is convertible at any time after the date of issuance into shares of the Company’s common stock at a fixed conversion price of $5.00 per share. Upon conversion of the convertible note into the Company’s common stock, the noteholder would be issued 1,000,000 shares of the Company’s common stock. Interest on the Convertible Note shall be paid to the investors at a rate of 7.25% per annum, paid on a quarterly basis, and the maturity date of the Convertible Note is two years after the issuance date. The Convertible Note purports to be secured by certain oil and gas leases, lands, minerals and other properties of the Company, subject to prior liens and security interests. See Note 5 – Related Party Transactions. $413,206 from a related party were exchanged for a Convertible Note. Due to the variable conversion price in the convertible credit line, this fixed senior secured convertible note is treated as derivatives due to the possibility of insufficient shares available at conversion to settle the notes. The day one derivative liability was $65,262, which was recorded as a discount on the senior secured convertible notes payable. During the three months ended March 31, 2023, the Company amortized $8,046 of the discount as interest expense. As of March 31, 2023, the unamortized discount was $29,592. The outstanding principal balance on the senior secured convertible notes payable as of March 31, 2023 and December 31, 2022 amounted to $413,206.

 

On February 25, 2022, Mr. Leaver assigned a $406,750 promissory note and advances of $500,000 to 20 Shekels, an affiliated Company. On the same day, the assigned promissory note and advance totaling $906,750 were transferred into a secured senior secured convertible note. The convertible note bears interest at 7.25% and matures on February 25, 2024. The note is convertible into shares of the Company at $5.00 per share. Due to the variable convertible credit line, this fixed senior secured convertible note are treated as derivatives due to the possibility of insufficient shares available at conversion to settle the notes. The day one derivative liability was $143,214, which was recorded as a discount on the senior secured convertible notes payable. During the three months ended March 31, 2023, the Company amortized $17,757 of the discount as interest expense. As of December 31, 2022, the unamortized discount was $64,836. The outstanding principal balance on the senior secured convertible notes payable as of March 31, 2023 and December 31, 2022 amounted to $906,754.

 

As of March 31, 2023 and December 31, 2022, the senior secured convertible notes payable balance, net of discount was $1,225,432 with accrued interest of $23,596 and $0, respectively.

 

 

NOTE 6 – COMMON STOCK

 

The Company is authorized to issue 75,000,000 shares of its capital stock, consisting of 10,000,000 shares of preferred stock, par value $0.001 per share, and 65,000,000 shares of common stock, par value $0.001 per share.

 

 

The Company compensates each of its directors with 4,000 shares of common stock each month. During the three months ended March 31, 2023, the Company recorded stock compensation of $36,000 for the directors which was recorded in additional paid in capital.

 

On September 2, 2022, the Company entered into a six-month agreement with a consultant that includes the issuance of 60,000 common shares. During the year ended December 31, 2022, the Company issued 60,000 common shares and recorded $40,000 of expense related to this agreement. During the three months ended March 31, 2023, the Company recorded $20,000 of expense related to this agreement.

 

On October 15, 2022, the Company entered into a one year agreement with a consultant. Per the agreement, the Company will compensate the consultant $10,000 and issue 2,000 common shares per month. During the three months ended March 31, 2022, the Company recorded $6,000 of expense related to this agreement.

 

 

NOTE 7 –CONVERTIBLE NOTES PAYABLE

 

On March 30, 2019, the Company executed a promissory note for $50,000 to ZQH (75%) and Pure (25%). The due date of the note is April 30, 2019 and has an interest rate of $50 per day. The note is for an escrow payment made directly to Premier Gas Company, LLC to hold the Purchase and Sale Agreement dated January 29, 2019. The note is secured by 50,000 shares of the Company’s common stock at $1 per share. On June 25, 2020, the Company entered into a Purchase and Sale Agreement (“PSA”) with Pure and ZQH to acquire oil and gas assets in Oklahoma (the “Rogers Project”) in consideration of a purchase price of $1,000,000. In connection with the purchase, the $50,000 note and accrued interest of $10,000 was added to the purchase price resulting in a total note payable balance of $1,060,000. During the year ended December 31, 2020, $10,750 of accrued interest which was previously outstanding was discharged and recorded as a gain on extinguishment of debt. The note payable of $1,060,000 was due to be paid on or before July 31, 2020 but remains outstanding to date. The balance of the note will increase by $50,000 per month thereafter up to a maximum amount of $200,000 through December 1, 2020. As of December 31, 2020, the Company recognized $200,000 of default interest that was added to the principal and made payments of $100,000 for a total payable of $1,160,000. If the purchase price is not fully paid on or before December 1, 2020, ZQH and Pure have the option to convert the balance outstanding into the Company’s common stock at a conversion price of $1.00 per share and the note will also be subject to a monthly interest of 1%. The Company, Pure, and ZQH have entered into various Extension Agreements, the current one of which is dated March 28th, 2021 (the “Extension Agreement”). The Extension Agreement prevents Pure and ZQH from taking stock rather than cash through June 1, 2021, in return for which Company makes a monthly interest payment to ZQH and Pure of $10,083, which represents 1% annual interest on the Purchase Price, compounded monthly. The Extension Agreement allows the Company to extend that period beyond June 1, 2021 under similar terms. No further Extension Agreement has been entered into to date. Per the extension agreement, ZQH and Pure have the option to convert all or part of the purchase price to the Company’s common stock at $1.00 per share after June 1, 2021. The Company evaluated the conversion option and concluded a beneficial conversion feature and embedded derivative were not present at the date of conversion. As a result of the conversion option on June 1, 2021, the Company reclassified the note payable to convertible note payable.

 

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As of March 31, 2023 and December 31, 2022, the convertible note payable balance was $1,210,000 with accrued interest of $22,183. The Company is in legal discussions with ZQH to relieve the loan as the properties in the purchase agreement were not held by title.

 

 

NOTE 8 SUBSEQUENT EVENTS

 

On April 10, 2023, the Company issued 70,852 shares of common stock valued at $5.00 per share to settle outstanding consulting invoices owed to Jay Leaver, President.

 

On April 25, 2023, the Company has adopted a revised Board of Directors compensation plan providing for awards to be made under the Plan and intended to replace the current director compensation plan which had provided for monthly grants to non-employee directors of 4,000 shares of restricted Common Stock per month. Under the new plan, each director shall receive compensation for their service on the Board and receive reimbursements for certain expenses in accordance with the Company’s reimbursement policy. Until the Company’s Common Stock is listed on a national securities exchange, each non-employee director shall receive options to purchase shares of Common Stock valued at $150,000 by the Black-Scholes pricing model on an annual basis, payable quarterly, with an exercise price equal to the closing price of the Company’s common stock on the last business day of the quarter.

 

12

 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

FORWARD-LOOKING STATEMENTS

 

The discussion and analysis below includes certain forward-looking statements that are subject to risks, uncertainties and other factors, as described in Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022, that could cause our actual growth, results of operations, performance, financial position and business prospects and opportunities for this fiscal year and periods that follow to differ materially from those expressed in or implied by those forward-looking statements. Readers are cautioned that forward-looking statements contained in this Quarterly Report on Form 10-Q should be read in conjunction with our disclosure under the heading Disclosure Regarding Forward-Looking Statements below. 

 

General Business Development

 

The Company was formed on September 26, 2013 in the State of Colorado.

 

Business Strategy

 

Our strategy is to acquire and develop additional properties we can restart, rework, and/or recomplete through cash and/or equity transactions. Our strategy is to acquire and develop additional producing properties in the vicinity of the Cherokee Uplift similar to our existing Logan Project that we can restart, rework, recomplete, and which have proven un-drilled potential to produce oil and natural gas. In this manner, our strategy involves acquiring existing infrastructure from historic operations. Deployment of current modern technology to enhance recompletions and drilling in previously undeveloped or underdeveloped areas is part of our strategy to enhance the value of acquired properties.

 

Liquidity and Capital Resources

 

As of March 31, 2023, we had total current assets of $141,432 and total current liabilities of $2,276,255.

 

The Company had $3,247of cash provided by operating activities during the three months ended March 31, 2023, compared to $306,268 used in operations during the same period in 2022. Net cash used in operating activities during the three months ended March 31, 2023 was mainly comprised of our $459,822 net loss during the period, adjusted by a non-cash charges of $62,000 for stock-based compensation, amortization of debt discounts of $25,703, depreciation expense of $6,107 and changes in operating assets and liabilities of $369,259. Net cash used in operating activities during the three months ended March 31, 2022 was mainly comprised of our $376,138 net loss during the period, adjusted by a non-cash charges of $2,758 for loss on change in fair value of derivative liabilities, stock-based compensation of $63,000, amortization of debt discounts of $10,826 and changes in operating assets and liabilities of $6,714. 

 

The Company used cash of $82,140 for investing activities during the three months ended March 31, 2023 which consisted of the acquisition of oil and gas property. The Company used cash of $507,814 for investing activities during the three months ended March 31, 2022 which consisted of $507,814 for the acquisition of oil and gas property.

 

The Company had no cash flows from financing activities during the three months ended March 31, 2023. The Company generated cash of $1,891,831 from financing activities during the three months ended March 31, 2022 which consisted of $110,235 in proceeds from advances from related parties, $499,996 from senior secured convertible notes payable from related party and $1,281,600 in proceeds from unexecuted subscription agreements.

 

Going Concern

 

The future of our company is dependent upon its ability to obtain financing and upon future profitable operations. Management has plans to seek additional capital through a private placement and public offering of its common stock, if necessary. See Note 2 to the unaudited consolidated financial statements for additional information.

 

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Results of Operations

 

We generated revenue of $71,716 and $0 during the three months ended March 31, 2023 and 2022, respectively. Lease operating expenses were $179,441 and $1,876 during the three months ended March 31, 2023 and 2022, respectively. The increase in revenue was due to the acquired percentage working interests and net revenue interests in the Logan Project. Total operating expenses were $ 298,013 during the three months ended March 31, 2023 compared to $346,018 during the same period in 2022. The decrease in operating expenses was due to a $38,205 decrease in professional services and $ 12,000 decrease in board fees, which were offset by a $2,200 increase in general and administrative expenses.

 

Off-Balance sheet arrangements

 

As of March 31, 2023, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

 

Critical Accounting Policies

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. Our accounting policies are described in Note 1 to our audited consolidated financial statements for 2022 appearing in our Annual Report on Form 10-K for the year ended December 31, 2022.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure Controls

 

The Company and its subsidiaries maintain an effective system of “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Exchange Act) that complies with the requirements of the Exchange Act. The Company and its subsidiaries have carried out evaluations of the effectiveness of their disclosure controls and procedures as required by Rule 13a-15 of the Exchange Act.

 

PART II OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

None.

 

ITEM 1A. RISK FACTORS

 

You should carefully consider the factors discussed below in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which could materially affect our business, financial position, or future results of operations. The risks described below in our Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially, adversely affect our business, financial position, or future results of operations. There have been no material changes in the risk factors set forth in the Company’s Form 10K for the period ended December 31, 2022.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

14

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable to our operations.

 

ITEM 5. OTHER INFORMATION

 

None.

 

15

 

 

ITEM 6. EXHIBITS

 

The following documents are included or incorporated by reference as exhibits to this report:

 

 

Exhibit

Number

Description

     
  3.1 Articles of Amendment
 

10.1

Revolving Credit Note

  10.2 Reserve Report
 

31.1

Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as a adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2

Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as a adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS**

Inline XBRL Instance

101.SCH**

Inline XBRL Taxonomy Extension Schema

101.CAL**

Inline XBRL Taxonomy Extension Calculation

101.DEF**

Inline XBRL Taxonomy Extension Definition

101.LAB**

Inline XBRL Taxonomy Extension Labels

101.PRE**

Inline XBRL Taxonomy Extension Presentation

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

** XBRL

information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

16

 

 

SIGNATURES

 

In accordance with Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date:  June 1, 2023

 

 

Truleum, Inc. 

 
       
 

By:

/s/ Jay Leaver

 
   

Jay Leaver, Principal Executive Officer

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

 

By:

/s/ Lacie Kellogg

 

 

 

Lacie Kellogg, Chief Financial Officer (Principal Financial and Accounting Officer)

 

 

 

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